European utilities

Energetic efforts

The wider significance of a Spanish takeover battle

EUROPEAN integration may be politically unfashionable—but it is still happening in the business world. Take the energy market, which is set for full liberalisation by 2007. When that happens, it is widely anticipated that the European Union will move from a series of markets largely fragmented by nationality, into a genuine single market dominated by five to seven pan-European players. A flurry of consolidation is taking place, as firms position themselves to be one of those big players. The latest move took place on September 5th, when Gas Natural of Spain launched a €22.5 billion ($28.1 billion) unsolicited bid for Endesa, a Spanish electricity firm.

If it goes through, the deal would be the biggest takeover in Europe so far this year. It would also be part of a series of energy deals taking place across the continent. Also on September 5th Germany's E.ON said it was thinking about bidding for Scottish Power, a British company. Last month, France's Suez bought the 49.9% it did not already own of Electrabel, a Belgian electricity firm. And after this summer's partial privatisation of Gaz de France, the former gas monopoly, the French government is preparing the partial privatisation of Electricité de France (EDF), the former electricity monopoly.

In its quest to become one of Europe's energy giants (alongside such probable players as E.ON and EDF) Gas Natural has tried twice in the past five years to buy a big power company in its Spanish home market. Both times its bid for Iberdrola was frustrated by a combination of regulators, major shareholders and politicians.

Politicians from the centre-right Popular Party (PP), Spain's largest opposition party, are already up in arms about Gas Natural's latest move, claiming it will reduce competition in Spain's energy market. Their outrage is probably also fuelled by the fact that Endesa is a company based in Madrid with ties to the PP, while Barcelona-based Gas Natural has close links with Catalonia's regional party, a coalition partner of the Socialist Party. Spain's Socialist-led government seems unlikely to block the takeover. It is in favour of building national champions and does not want to miff an important coalition partner. The real problem could be the competition authorities. Will they accept less competition within Spain, in return for sharper competition across Europe?